Latest Buffett Headlines

Saturday, April 30, 2011

If Berkshire Hathaway's annual meeting is the "Woodstock of capitalism," then the David Sokol affair may become the bad acid.

Berkshire founder Warren Buffett has been weathering the worst trip of his career since he disclosed last month that Sokol, his heir apparent, had resigned from the company after a series of shady stock trades in chemical giant Lubrizol.

After a virtually unblemished record, the Oracle of Omaha is suddenly facing questions about his management style, the company's corporate governance and internal controls and the future management of the company.

Buffett -- who at Berkshire's yearly meetings typically strums the ukulele and sips root-beer floats between gab sessions where he doles out folksy wisdom to investors -- said he won't be dodging any questions on Sokol at the gathering in Omaha, Neb., this weekend.

"You will not hear 'no comment,' " Buffett told Fox Business Network on Thursday. "If our lawyer gets up and wrestles me to the ground, I will still talk."

Nevertheless, Buffett's position has flip-flopped since he revealed that Sokol had bought a $10 million personal stake in Lubrizol while successfully egging on Buffett and Berkshire's board to acquire the chemical maker for about $9 billion in March.

This week, Berkshire's directors issued a scathing report that accused Sokol of making "misleadingly incomplete disclosures to Berkshire Hathaway senior management" that "violated the duty of candor he owed the company." Berkshire said it is considering "possible legal action" against Sokol, who it said violated its insider-trading policies.

The board found no fault with Buffett's handling of the situation.

The Securities and Exchange Commission is reportedly investigating Sokol's actions, while Sokol's attorney Barry Levine has denied the accusations. Levine also alleged the board didn't give Sokol a chance to respond to its allegations -- a charge Berkshire denies.

Before this week's fracas, however, Buffett had bent over backwards to defend his former lieutenant.

"Neither Dave nor I feel his Lubrizol purchases were in any way unlawful," Buffett declared in a March 30 statement.

"Why did it take so long to recognize there was a problem?" said Gregory Little, a partner at the law firm White & Case.

It's possible, Little said, that Berkshire was "inclined to give [Sokol] the benefit of the doubt" as it gathered information before reaching its conclusions this week.

Still, some legal experts have trouble making sense of the fact that Buffett was so protective of Sokol after assessing the situation himself.

"At that time, Buffett knew Sokol had betrayed him and he still defended Sokol," said one veteran securities lawyer. "That's what's wrong. I can't figure out how Buffett's advisers could have let him line up behind Sokol."

Speaking to our Becky Quicklast night at an event ahead of this weekend's shareholders meeting, Buffett said commodity price increases could force businesses, including Berkshire's, to raise prices even if consumers aren't buying.

BUFFETT: I heard quite a bit of it. Yeah, I didn't hear it all. But I mean, yeah, I heard it.

BECKY: What did you think of what he said?

BUFFETT: I think he's a very, very smart man. I hope he's right, that we can do what we're doing and inflation won't get going. But he is as conscious of inflation as I am, or anybody is. You know, I don't think there could be a better Fed chairman, but I still worry about inflation.

BECKY: You've been very worried about it, and worried that the Fed maybe hasn't paid enough attention. Do you think they are seeing the same thing you're seeing?

BUFFETT: I think they see the same things, but they may interpret them differently. He didn't talk about this the other day, but there's a lot of people who take the approach that because there's excess capacity in the United States industry that you can't have inflation because it won't get tight. But I can tell you that in the businesses we're in, plenty of them have a lot of excess capacity still. But if we get enough commodity price increases, we raise our prices even though business is not good. That happens, for example, in carpet. Carpet is oil (laughs) to some degree. There's just no way we can take the price increases, even though our business is not good. Our profits are not good at all in the carpet business. We still have to raise prices.

Friday, April 29, 2011

David Sokol appearing live on CNBC's Squawk Box on March 31, 2011, the morning after his surprise resignation was announced.

Warren Buffett tells CNBC he wants to make his first public comments to shareholders this weekend about tonight's blistering report by Berkshire Hathaway's Audit Committee on David Sokol's Lubrizol trades.

Buffett promises to "welcome all questions" on the Sokol scandal this coming Saturday, when tens of thousands of Berkshire shareholders will be in Omaha for the company's annual meeting.

He'll also answer Becky Quick's questions about the matter when he does his first live interview following the meeting, appearing on CNBC's Squawk Boxbetween 8 AM and 9 AM ET Monday morning.

There's no statement from Buffett in the news release accompanying tonight's release of an 18-page reportfinding that Sokol violated the company's ethical standardswhen he bought Lubrizol shares while "serving as a representative of Berkshire Hathaway in connection with a possible business combination with Lubrizol."

Buffett hasn't said anything about the matter since his unusual public letter less than a month ago first revealing Sokol's Lubrizol purchases. At that time, Buffett wrote he would not have anything to say on the matter in the future.

Tonight's report appears to be a response to widespread criticism about Buffett's handling of Sokol's trades and resignation.

Berkshire's Audit Committee also accuses Sokol of making "misleadingly incomplete disclosures" to Berkshire's senior management about his Lubrizol stock buys, even as he was recommending that Berkshire buy the company.

The panel says Berkshire is considering "possible legal action against Mr. Sokol to recover any damage the Company has sustained, or his trading profits."

Sokol made a profit of around $3 million on his shares when Berkshire announced on March 14 that it would buy the chemicals company at a 28 percent premium to where Lubrizol was trading.

Sokol appeared live on CNBC (complete transcript) on March 31, the morning after his surprise resignation as a top Berkshire executive was announced. At that time he strongly defended his actions, insisting he did nothing wrong.

When asked if he would have done anything differently, he told Becky he would "never have mentioned it to Warren, and just made my own investment and left it alone."

So far tonight, we have not been able to reach him for his response to the Audit Committee's accusations.

Before the scandal, Sokol had been considered the leading candidateto eventually succeed Buffett as Berkshire's CEO.

I am profoundly disappointed that the Audit Committee of Berkshire Hathaway would authorize the issuance of its report to the public without the care and decency to ask even a single question of Mr. Sokol. Mr. Sokol had been associated with the Berkshire Hathaway companies for 11 years. During this time, his indefatigable efforts helped create enormous value for the Berkshire shareholders. He deserved better...

I have known Mr. Sokol and have represented his companies in business litigation since the mid 1980s. I know him to be a man of uncommon rectitude and probity. He would not, and did not, trade improperly, nor did he violate any fair reading of the Berkshire Hathaway policies.

Mr. Sokol was interviewed at least three times regarding his Lubrizol trading activity and contacts with Citi bankers. In connection with the preparation of the audit committee report, a request for a further interview with Mr. Sokol was made to his attorney. Mr. Sokol was not made available.

Watch for more shots at Sokol this weekend at the Berkshire shareholders meeting. And remember that Berkshire is threatening to sue Sokol to get his Lubrizol stock profits.

The 2010 Annual Reports will be mailed to shareholders of record andbeneficial-but-not-of-record shareholders beginning in mid-March. Includedin the mailing will be the Proxy Statement. A perforated postcard will beattached to the Proxy. Fill out and return the postcard to order your meetingcredentials

The 2011 Visitor’s Guide will be posted at this site mid-March with a more detailedlisting of weekend events, shuttle service, hotels and points of interest listings.The meeting credentials are required for entryto not only the annual meeting and other related events,but also to receive shareholder discount pricing.

Berkshire Shareholder Discount Periods

Borsheims

Monday, April 25th – Saturday, May 7th

Nebraska FurnitureMart

Tuesday, April 26th – Monday, May 2nd

Weekend Activities

Weekend activities will begin on Friday evening and conclude with dinner onSunday evening.

Friday, April 29

Borsheims

Shareholder Reception

6:00 – 9:00pm

Saturday, April 30

AnnualMeeting

Doors Open 7:00am

Company Movie 8:30am

Q&A 9:30am – 3:30pm

Business Meeting 3:45 – 4pm (approximation)

NetJets Display Noon – 5pm

Lunch Break Noon – 12:45

Exhibit Booths Close 4:30pm

NFM Picnic 5:30 – 8:00pm

Sunday, May 1

Borsheims

Exclusive Shareholder Shopping Day9:00am – 4:00pm

Shareholder Steak Night!

Gorat’s Steakhouse

1:00pm – 10:00pm Sunday

Reservations required (but not accepted before April 1)402/551-3733

Piccolo’s

Open at 4:00pm SundayFriday 5-10pmSaturday 4:30-10pm402/342-9038Currently taking reservations!TRAVEL & HOTEL ASSISTANCEContact American Express Travel for hotel and airline reservationsThey will be able to give you up-to-the-minute information on hotel availability1-800/799-6634402/697-5314 (Outside the U.S.)berkshire@aexp.coms

Thursday, April 21, 2011

The board of directors of Warren Buffett's investment firm Berkshire Hathaway is being sued by a shareholder, following the resignation of his former heir apparent David Sokol over controversial trades.

The case Kirby v Sokol et al was filed in Delaware's Chancery Court today (Tuesday) by shareholder Mason Kirby, who is seeking disgorgement of any gains made under Mr Sokol's disputed trades.

Associated Press

APRIL 20, 2011, 10:46 A.M. ET

NEW YORK — A property and casualty unit of bailed-out insurer American International Group Inc. is transferring potential asbestos liabilities to a subsidiary of Warren Buffett's Berkshire Hathaway Inc. to reduce its risk.

Chartis, which is a core part of New York-based AIG, said Wednesday that had agreed to pay Berkshire's National Indemnity about $1.65 billion for a retroactive reinsurance policy that will cover up to $3.5 billion in asbestos losses.

Insurers buy reinsurance policies as backup coverage designed to help spread out the risk, and several of Berkshire's subsidiaries specialize in reinsurance. Berkshire and National Indemnity are both based in Omaha, Neb.

Chartis plans to record a deferred pretax gain of about $200 million in the second quarter as part of the deal. The deal is retroactively effective Jan. 1.

WFC.N), the fourth-largest U.S. bank, posted a decline in revenue, and shares fell 4.9 percent as a bank known for outsmarting rivals turned in an average performance.

Net earnings rose 50.5 percent, but gains were driven mainly by setting aside less money to cover bad loans. The bank's loan book shrank as outstanding loans to consumers declined and loans to companies did not grow enough to compensate.

Credit quality improved for the bank, as it did for rivals, but investors are less clear about where future profit growth will come from.

"It's a simple issue of their revenue being weak and their earnings before taxes and provisions being down significantly. I think that's why the stock is down," said Keith Davis, an analyst at Farr, Miller & Washington, with $730 million under management.

Wells Fargo was one of the biggest mortgage lenders in the United States in the years leading up to the housing crisis, but managed to stay profitable during all but two quarters during the financial crunch.

Warren Buffett's Berkshire Hathaway (BRKa.N) (BRKb.N) has long invested in the bank because of the strength of its retail franchise and its skill at selling multiple products to customers.

But some investors now wonder if Wells Fargo's edge is disappearing.

"They're becoming more like every other bank," one hedge fund manager said on Wednesday.

Wells Fargo shares fell $1.46 to $28.61 in early afternoon trading.

The bank's first-quarter net income for common stockholders rose to $3.57 billion, or 67 cents per share, from $2.37 billion, or 45 cents per share, a year earlier. Revenue fell 5 percent to $20.33 billion.

Wells Fargo cut the amount of money it set aside for bad loans to $2.21 billion from $5.33 billion a year earlier. It also released $1 billion, pre-tax, from its reserves.

Almost one in five believed Sokol's actions would lead to insider trading charges.

"Clearly the fact is that there's a perception of doing something he shouldn't have done," said David Lazarus, senior managing director and co-founder of EdgeRock Realty Advisors.

Buffett released a letter last week disclosing that Sokol actively traded in a substantial amount of Lubrizol's shares before and while urging Buffett to acquire the chemicals company, which Buffett did for $9 billion last month. Sokol's investment in Lubrizol netted him some $3 million in profits.

Sokol, who was seen by many investors as the most likely successor to Berkshire's iconic CEO, resigned last week.

He has defended himself since, saying on CNBC he had no inside information, did nothing unlawful or unethical and his resignation had nothing to do with his trading.

Buffett's assistant Carrie Kizer did not immediately return a call for a comment on Thursday.

Only one of the bankers at the Reuters Summit who responded to the question in the anonymous poll said Sokol's behavior breached no ethics or rules and a takeover of Lubrizol was "just an idea" he brought to Buffett, without knowing that the Oracle of Omaha would move forward with such a deal.

The questions around Sokol's actions come amid heightened concerns about insider trading on the Street, as the government cracks down on the illegal practice.

Several high-profile cases such as the criminal trial of Galleon Group hedge fund founder Raj Rajaratnam have been brought in the past few months.

GOVERNMENT CRACKDOWN

Questions about Sokol's behavior have slammed Buffett with unprecedented criticism as Berkshire's annual April 30-May 1 shareholder meeting approaches -- the weekend gathering of a usually adoring crowd of 40,000 or more shareholders.

Sokol, in his CNBC appearance last week, also spoke of broader Berkshire practices that could fuel regulatory scrutiny.

He said other Berkshire executives have in the past held stock in companies they then identified for investment or acquisition, citing the example of Berkshire Vice Chairman Charlie Munger owning a stake in Chinese car maker BYD (1211.HK) before suggesting it for an investment.

Munger has defended himself against the allegation.

A recent regulatory filing by Lubrizol shows that Sokol had a meeting with bankers at Citigroup Inc (C.N) on December 13, 2010, at which they discussed a list of 18 companies the bank had compiled for Sokol as potential takeover targets.

Sokol began buying the stock the next day and presented the idea of buying Lubrizol to Buffett on January 14 or 15. Berkshire ultimately announced its purchase of Lubrizol on March 14.

It is unclear why news of Sokol's investment surfaced only last week, or whether government investigators have looked into the matter. The U.S. Securities and Exchange Commission and the Department of Justice declined to comment on Thursday.

By Shira Ovide

“It wasn’t Mr. Sokol’s finest hour.”

Bloomberg News

Roger Altman

That is the assessment from banker extraordinaire Roger Altman about David Sokol, the executive of Warren Buffett’s Berkshire Hathaway who bought stock in a chemicals company and then convinced Buffett to buy it.

“To the best of my knowledge, no one at Lubrizol knew anything about it,” Altman told CNBC this morning, speaking about Sokol’s purchase of $10 million shares of Lubrizol stock just days before the executive began urging Buffett to buy Lubrizol.

When Berkshire agreed to acquire Lubrizol for $9 billion, Sokol made a roughly $3 million paper gain on his stock.

Altman said he couldn’t opine on the legality of Sokol’s stock purchases, but he said the share purchase was “not a smart thing to do.”